Intervention by pensions minister Steve Webb is a boost for those with legacy
policies

An inquiry into the treatment of millions of customers sold pensions, investments and insurance from the Seventies until the turn of the millennium has been backed by the pensions minister.

Steve Webb, the Liberal Democrat architect of the new £155-a-week state pension, told The Sunday Telegraph that he welcomed the investigation, which will be undertaken by the City watchdog this summer.

The inquiry, disclosed by the Telegraph nine days ago, has been smeared by a political row involving George Osborne, the Chancellor, over how this newspaper came by the information.

The intervention of Mr Webb represents a major boost to savers, many of whom are trapped in policies.

The inquiry by the Financial Conduct Authority will complement the efforts of Mr Webb’s department to reduce fees on workplace pensions, an aide added.

The regulator is concerned that insurers are “not giving [legacy] customers the same priority as new customers”. It said there was a possibility of “exploitation” by insurers that use high charges to allocate an “unfair amount of overheads” to older contracts.

Many customers are locked in by exit penalties, which can halve the amount of money if the customer switches to a better deal. The regulator will “intervene” on exit charges if required, it said.

Mr Webb is an outspoken opponent of high fees. In 2012 he told this newspaper: “Leading insurers need to look at their back book of pensions. If they come across policies with charging structures they wouldn’t dream of offering today, they should review them. And that includes scrapping exit penalties.” Insurance executives were furious that billions were wiped off stock market values when the Telegraph broke the news.

An independent inquiry into FCA public relations was initiated, with both Mr Osborne and the Treasury select committee demanding an explanation.

Justin Modray, founder of Candid Financial Advice, said: “Insurers might protest but many are guilty of extortionate pension and investment charges. The FCA needs to ensure customers can get out of these policies without penalty.”

The Association of British Insurers said its members took the principle of treating customers fairly “very seriously”, regardless of the age of the product.

The review will also take into account endowments, with-profits and whole of life insurance.